The real estate market is highly focused on the capital city, Ulaanbaatar, which is under pressure due to a fast rate of urbanization; supply constraints due to capacity, weather, geography and capital; and the rising wealth of its residents.
Ulaanbaatar’s inhabitants account for approximately 46% of Mongolia’s population of 2.8m. Forecasts indicate that by 2020 this will grow to 54%, representing about 1.5m. Mountains either side of the city restrict where the expanded population can live.
- Rapid economic growth is expected to continue at double digit pace in the medium term
- Significant urbanization and demographic changes
- Rapid increase in the number of international investors and expats, looking for international standard accommodation and commercial space
- Rises in real wages for a substantial segment of Mongolian society, moving from low to middle income status
- An emerging class of extremely wealthy Mongolians
- Rapid development of the mortgage market is reducing financing constraints for homebuyers
- Peace Boulevard is the sole direct connection between the East and the West parts of the city. There are nine administrative districts in the capital with the center, Sukhbaatar, home to the parliament, as well as government buildings and all but one of the country’s Grade A office towers.
- Real incomes were 20% higher in 2012 than in 2008, causing the World Bank to upgrade Mongolia from a low to a middle-income country.
Key drivers and supply constraints in Ulaanbaatar’s real estate market include the following:
- Supply chain issues are hampering transportation of construction materials
- Lack of available land in high demand areas in the center of Ulaanbaatar
- Spatial development constraints, as projects effectively cannot be built outside Ulaanbaatar’s existing heating grid
- Geographical constraints caused by the city’s surrounding Ger districts, with plot owners enjoying strong land ownership rights allowing them to halt developments.
- Lack of access to financing for many local developers
Mongolia’s economy is forecast by the IMF to grow 14% yearly through to 2016, underpinned by a thriving mining industry and China’s increased demand for coal.
With the expansion of the mining and financial services industries, including the country’s insurance and lending sectors, the demand for high quality Grade A and B office space is expected to grow substantially.
As more and more international brands consider entering the Mongolian market to capture demand from the increasingly affluent population, it is those retail scheme that are well designed and strategically positioned that will benefit from full occupancies and will set market rental levels.
All of the positive macroeconomic dynamics have led to unique investment opportunities, in terms of high rental yields and strong capital appreciation. Mongolian real estate is likely to feature higher rental growth, land values and sale prices for the next five years. Click here to view the latest forecast for the Mongolian real estate market, generated by our dedicated research team.
Mongolian real estate is proving to be an attractive portfolio diversifier for a growing number of private and institutional investors worldwide. This is an incredibly exciting time to be entering the market that offers rare first-mover advantages.